King coal losing crown as U.S. gains energy independence

After working 37 years in the coal mines of West Virginia, Ronny Justice punctuates his sentences with coughs. He lost his job a year ago, leaving him without health insurance just as he’s battling the early stages of black-lung disease.

Justice, 57, had planned to work four more years in a job that paid him about $58,000 a year, enough to eat out anytime he wanted. Now he can’t remember the last time he hit the Park Avenue Restaurant and Motel for a $6.95 steak dinner.

Boone County, where he lives, hosts 91 mines and an annual festival meant to celebrate “coal and its heritage.” Like Justice’s health, that heritage is under siege. In the next three years America will close a record number of coal-fired power plants, enough electricity to power 18.4 million households for a year, government estimates show. Lower-cost gas, new environmental rules and increased use of renewable energy sources, such as wind and solar, are reducing coal usage.

“Things are looking grim,” Justice says. “I’ve never seen it this bad, no. Coal’s what pays the bills in West Virginia.”

Pain is being felt from Appalachia to Wyoming as the U.S. reduces its dependence on coal to almost the lowest level in 63 years — the cost of the country becoming more energy self- sufficient through the production of more natural gas and oil.

Prices have retreated 57 percent from a record in June 2008 as coal’s share of U.S. electricity generation sank to a record low of 37 percent last year from 50 percent in 2005. Its future looks even bleaker after President Barack Obama said in his State of the Union address that fighting climate change would be a second-term priority.

Greenhouse Gases

Obama failed in his first term to get Congress to pass legislation controlling greenhouse gases. His new pick to run the Environmental Protection Agency, Gina McCarthy, helped create the U.S. Northeast’s cap-and-trade program for power plants as Connecticut’s environmental chief. Cap-and trade is a system aimed at reducing greenhouse gas emissions by allocating permits to polluters that must surrender enough allowances to cover their discharges of carbon dioxide or pay fines.

In his Feb. 12 State of the Union Address, Obama said more aggressive steps to address climate change are needed, citing natural disasters, from last year’s drought that reduced Mississippi River levels to Hurricane Sandy, which pummeled the East Coast, killing at least 147 people and causing an estimated $50 billion in damage.

Superstorm Sandy

“We can choose to believe that Superstorm Sandy and the most severe drought in decades and the worst wildfires some states have ever seen were all just freak coincidence,” he said in his address. “Or we can choose to believe in the overwhelming judgment of science and act before it’s too late.”

Burning coal emits 205.7 pounds of carbon dioxide per million British thermal units compared with 117 pounds per million Btu for natural gas, according to data from the Energy Information Administration. Natural gas will fuel 28 percent of generation this year, compared with 30 percent last year and up from 16 percent in 2000.

Coal’s decline is being exacerbated by increased reliance on renewable energy as its share of electricity jumps by about 54 percent during the next four years, spurred by federal and state mandates and tax incentives.

As many as 5,400 direct U.S. jobs could be lost by 2015 as regulations prompt utilities to shut plants to comply with tighter environmental laws, based on data from the Energy Department and estimates from Matt Preston, principal coal analyst for the Americas region at Wood Mackenzie in Annapolis, Maryland.

Mining Jobs

Another 30,000 more may disappear in the coalfields and ripple through the businesses that support them, from local diners to the companies that help replace worn tires on mining equipment, said Douglas Blackburn Jr., president of Blackacrellc, a Richmond, Virginia-based industry consultancy, whose clients include Goldman Sachs Group Inc., Duke Energy Corp. and the U.S. government.

Hydraulic fracturing, or fracking, has unlocked shale deposits that previously were uneconomical to produce. The losses in coal may be more than made up by the gains in shale. About 3.5 million new jobs will be created by 2035 as the U.S. exploits its shale reserves, a 2012 IHS study sponsored by the American Petroleum Institute, the Natural Gas Supply Association and others estimated.

While most analysts expect a short-term bounce in coal this year as natural-gas prices rise, total U.S. coal production in March was down 3.3 percent from a year earlier, according to data from Bloomberg Industries. That trend is likely to continue because of tightening environmental restrictions and cheaper natural gas.

Appalachian Pain

No region is more affected than Appalachia, where West Virginia, the second-largest U.S. producer, accounted for 25 percent of the nation’s 91,611 coal jobs in 2011, Energy Department data show. Nationwide, industry payrolls plunged 46 percent from 1985 to that year, according to the figures.

Houses and trailer homes line Route 85 as it slithers through hills to the foot of a mountain that holds Alpha Natural Resource Inc.’s (ANR) Independence mine. Many of the units have sagging roofs and rotting wooden porches, one with a rusty water heater sitting on it.

The number of West Virginia miners or workers connected to mining who applied for unemployment benefits rose to almost 6,000 in 2012, from 2,045 in 2011, according to the state’s Commerce Department. Like many of them, Justice has run out of jobless benefits. After being unable to find a job, he sought the help of the United Mine Workers of America to get his pension, worth less than half of what he was earning, and to secure medical insurance.

Unemployed Ranks

About a mile away, James Gray, 47, of Danville, has also joined the ranks of the unemployed. He worked in the mines for 24 years. He and his wife, a licensed practical nurse, live off her salary. After he was fired from his $65,000-a-year job in 2011, they canceled cable television, reduced their auto insurance to just liability coverage and stopped eating out.

“If she wasn’t working, we wouldn’t be making it,” he said. “We’re just barely getting by.”

Linda Meeker has run the “Heart of God Soup Kitchen” in Danville since June 2010. The operation is open Monday through Friday for two hours in the last 10 days of the month. “That’s when people run out of money,” she said.

The kitchen served a record 8,100 meals in 2012, about 30 percent more than in 2011, Meeker, 64, said.

“In the past three months the meals have doubled because all the men have lost their jobs,” she said as the smell of garlic, spaghetti sauce and fried chicken filled the air.

Food Stamps

The number of West Virginians receiving food stamps last year averaged 346,833, data from the U.S. Department of Agriculture shows, up 25 percent from 2008.

Even the prospect of employment in the mines can be ephemeral these days. Charles Williamson, of Logan, vowed to himself not to follow his father into the coal mines. After getting a bachelor’s degree in finance from Marshall University in Huntington, West Virginia, though, he was unable to find work as a stock broker. Burdened with student loans, he took a job with Alpha Natural Resources Inc. He was laid off before he started.

“I’m actually living with my parents,” he said. “A 40- year-old man living with his parents — there’s no more jobs around here.”
Blackburn, the industry consultant, is a fourth-generation miner. He has witnessed downturns before and heard about others from his father and grandfather.

Losing Miners

“It’s different,” he said. “We’re going to lose a lot of miners. The difference is even in the ’80s we were able to sell coal. Right now if you don’t have contracts, I don’t know where you’re going to sell coal. This is intense.”

Each of the coal industry’s jobs generates six others, from hydraulic repair shops and fabrication businesses to conveyor belt repair, restaurants and health care, Blackburn said.

The fuel’s decline is having the reverse effect. At Stephens Auto Center in Danville, new and used-car receipts were down 20 percent in November from a year earlier, said Richard Stephens, owner of the dealership. “There will come a time when I may have to make some hard decisions,” possibly laying off his workers, he said.

Peabody, Arch Coal Inc. (ACI) and Consol Energy Inc. (CNX) are among the companies that have reduced production. Patriot Coal Corp. (PCXCQ), spun off from Peabody in 2007, filed for bankruptcy protection in July, saying “the coal industry is undergoing a major transformation.”

‘Painful Adjustment’

“It’s got to go through a painful adjustment,” said Gerard McCloskey, chairman of Merlin Trade & Consultancy and founder of IHS’s McCloskey Group, a Petersfield, U.K-based coal market research company. “It’s got to happen so quickly. That makes it that much more painful.”

Global demand for coal isn’t nearly as grim. Worldwide consumption will rise 2.6 percent annually in the next six years and even challenge oil as the top energy source, the International Energy Agency said Dec. 18 in its Medium-Term Coal Market Report.

U.S. producers also may benefit in the European Union as carbon permits have plunged 45 percent in the past year and lawmakers resist measures to boost the market because it may negatively impact the economy as it tries to recover from recession. Prices would first have to rise to a level that makes it economical for U.S. companies to ship the power-plant fuel to the continent, said Lucas Pipes, an analyst at Brean Capital LLC in New York.

Port Trouble

While coal from Wyoming’s Powder River Basin and the Illinois Basin fair better domestically than the Appalachian variety because they’re more competitive with gas, the ability to capitalize on Asian demand has been slowed as environmental groups block expansion of U.S. port capacity, Wood Mackenzie’s Preston said.

Back in Boone County, West Virginia, Richard Light, 46, frets about how he and his three daughters will make it in the next three years.

He’s still employed by Hobet Mining, where he took a $5-an- hour pay cut and saw his personal days cut to six from 24. If he can make it three more years he’ll have 20 years of service, guaranteeing a pension and medical benefits.

“You don’t know what’s going to come out of this,” he said. “People say there’s other jobs, but that’s not true. There’s nothing around here.”